Here are five key things that brokers need to know about this latest wave of regulation to help ensure a smooth transition.
- The IDD applies to all businesses involved in the insurance supply chain. This includes intermediary firms, product manufacturers and online distribution, such as via a website or price and product comparison sites. In short, if you play a part in putting insurance in the hands of a consumer, the IDD is of relevance to you.
- Products offered must be consistent with the client’s specific demands and needs. This should of course have been happening already but the new rules mean that firms must ensure the demands and needs statement or financial report is personalised – a generic statement of demands and needs without some matching of an individual client’s needs to the product offered is no longer sufficient. However, the FCA does not expect non-advised sales to go beyond the client’s high-level demands and needs.
- The IDD brings in a requirement for 15 hours of continuing professional development (CPD) for anyone distributing insurance products. This means that whether you advise, arrange, paraplan or help manage claims or complaints in connection with insurance, you need to complete 15 hours of CPD a year. This does not have to be structured, although that counts too, but it does have to be relevant to the role being performed and support competence. This may well mean that additional people in a firm are now required to log CPD who have never been required to before. In respect of the insurance related CPD requirement, if you are an appointed representative firm, your network will gather this information from you but directly authorised firms will need to keep a central record of their own CPD progress – this needs to cover all affected staff and hold a rolling three years’ worth of records, with a named member of staff responsible for maintaining these.
- You can pro-rata the requirement for the remainder of the current CPD year from 1st October. If your CPD year starts on 1st January therefore, you would have 3 months left of the CPD year when the requirement came in, so you’d need to fit in three and ¾ hours of insurance-based CPD before the end of the year (and you may have already completed some relevant hours earlier in the year that you can log).
- Sales incentives must be revealed. Where you operate a remuneration model that includes an incentive arrangement which rewards, at least in part, volumes of sales of insurance products, then the existence of this arrangement needs to be disclosed to the client. You must disclose the nature and the basis (fee, commission or combination etc.) of remuneration received under an insurance contract and this is applicable to all clients, not just commercial. Fees payable by a client must be shown in cash terms or if it’s not possible for an amount to be given, provide a basis for the fee calculation.
Overall, the IDD will have minimal impact on firms’ day-to-day operations but, as you can see, the broad scope makes small changes in a number of areas that brokers need to be prepared for.